Whether we like to admit it or not, we all suffer from behavioral biases that can be a serious impediment to successful investing. Interestingly, these psychological pitfalls are not the same for everyone. The novice investor likes to extrapolate past trends and enters the market only after years of positive returns, at which point it's often too late. On the other hand, professional investors are painfully aware of the market’s cyclicality, as they have experienced regime changes in their careers. However, they tend to call the turn too soon, underestimating the chances that trends can extend long beyond what basic fundamentals or simple statistics suggest.
So, where are we today? Although we will attempt to roughly gauge the clock, the final answer to that will of course only be known in hindsight. Timing the market is a tempting but rarely successful endeavor. Instead, investment portfolios should be positioned to fare well through the entire cycle. With a focus on defensive quality, balanced liquidity and alternative risk premia, a well-diversified investment portfolio should be able to weather turbulent periods and, ultimately, stand the test of time.
Against this background, we hope you will find LGT Capital Partners broader outlook insightful and invite you to share your views and ideas with us.
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Note: The next edition of the LGT Beacon is scheduled for mid February 2019.